integrated oil companies - All posts tagged integrated oil companies

Shares of Marathon Oil were up 2% on an upgrade and shares of Exxon Mobil declined half a point on a downgrade as Goldman Sachs tempered its outlook for 2013.

Saying investors need to pay attention to individual company stories, Goldman underscored that Marathon Oil (MRO) could be the first domestic or integrated oil comapny to move from a period of “shale strain” to “shale scale.” Goldman also is staying “particularly bullish” on undervalued refiners with “mid-continent” exposure …

“… given our view that the Street is reflecting too bearish of an outlook for MidCon crude oil discounts in refining valuations. Our updated 2013 EPS estimates are 28% above consensus and we see 38% total return upside potential for the sector. … Our Buy-rated top picks remain HollyFrontier (HFC) and Marathon Petroleum (MPC) among large-caps and Northern Tier Energy (NTI) and Western Refining (WNR) among small-mid-caps.” But they also acknowledged the eight refiners they cover “sharply outperformed other high-beta energy sectors” in 2012.

A big driver in ratings changes for integrated exploration and refining plays: spending in U.S. shale formations. In addition, Goldman is looking for commodity prices to continue normalizing, with Brent oil at between $100 and $110 per barrel, and U.S. natural gas at around $4 per million British thermal units. Some companies are in a position to benefit from investment in shale formations, the source of increased domestic natural gas production, as well as extraction of gas liquids and crude oil. Goldman says …

This just in on Chevron from the ever-witty Paul Sankey, the analyst covering the integrated oil giants at Deutsche Bank.

Sankey thinks there’s plenty of upside in the stock, as we noted Friday after Chevron (CVX) posted earnings. Sankey has a Buy rating and price target of $130 on shares, which were trading near $106.33 in mid-afternoon trading Monday, up just 13 cents, or less than 1%. His target is 22% above the current price, and the stock pays a 3.4% yield.

But Sankey is emphasizing the long-term nature of his call. After the headline, “But more, there’s wait,” Sankey writes:

“Chevron is a waiting game. In fact, a multitude of waits. We are waiting for final capex spend to emerge on major projects, we are waiting for volume growth to start in 2014. We are waiting for cash return from the $19 billion cash pile. We are waiting to be sure there are no acquisitions instead. We are waiting for resolution in Ecuador, we are waiting for resolution in Brazil. As of today we are waiting for George Kirkland to participate on next quarter’s call and update the volume outlook for this year, with details of the project start ups that we are waiting for. So that finally, we are waiting for the multiple to expand and reflect its high Brent leverage, short US natural gas, high profitability, and its high returns.”

Sankey advises investors to invest $100 per month in the stock, “and call me in ten” years, because,

“When precisely will the best entry point be over the next five years? Impossible to say. Is the long-term asset base and return potential under-valued? Absolutely. For today, the Q1 result does absolutely nothing to reduce the sense of waiting, change the view that this is an under-valued stock (best in class, as return on capital employed passes ExxonMobil (XOM) now), with long term upside. But nor does it alleviate the perception that major oils have falling volumes (negative growth) and falling relative returns. So multiples are likely to continue to drift relatively lower; while we wait for the turn; the point at which volumes and returns start simultaneously rising. Right now that point is scheduled for 2014.”

Barclays Analyst Paul Cheng also is out with positive comments on Chevron today. He likes the near-term outlook for Chevron, given its exposure to oil prices relative to peers:

“While we remain biased towards the mini-major oil companies, such as Suncor Energy (SU) and Imperial Oil (IMO), we continue to think that Chevron will outperform among the super majors over the next several months in this higher oil price and low North America natural gas price environment. We estimate that a $10/barrel change in oil price and $1.50/million cubic feet change in the North America gas price is equivalent to 12% and 2% of estimated Chevron 2012 earnings, respectively, while Exxon and ConocoPhillips have both lower oil price exposure and higher natural gas price exposure.”

Chevron’s earnings rose in the first quarter, something other U.S. energy giants couldn’t pull off.

The company raised its dividend by 11% too. Yet shares of the integrated oil giant Chevron (CVX) were flat Friday, near $106.30.

The big integrated exploration and refining companies admittedly don’t offer big swings in price, unless commodity prices are volatile. U.S. crude prices were mostly flat Friday, trading near $104.76. Natural gas futures, which we said last week may have bottomed following some fear that the price could drop to $1, were up about 4 cents to $2.17 per million British thermal units.

Chevron reported diluted earnings of $6.5 billion, or $3.27 per share, compared to $6.2 billion, or $3.09 per share, in the 2011 first quarter. Revenue was $59 billion, compared to $58 billion in the year-ago quarter, with strong oil prices offsetting lower production.

More exposure to oil prices than those of depressed natural gas helped. But earnings got a boost from the sale of assets, which were partially offset by negative foreign exchange effects; with those, earnings would have come in at $3.17 per share, according to Simmons & Co. estimates. ExxonMobil (XOM) and ConocoPhillips (COP) reported year-over-year decreases in profits earlier in the week. On Friday, Total (TOT) reported a one-percent decline in adjusted net income for the first quarter.

“We think earnings will have a neutral to positive impact on the shares’ near-term performance. Despite 1Q12 earnings results coming in slightly lower than consensus and our expectations, we think the market will focus on the stronger-than-expected upstream results. Even with a bigger than expected foreign exchange loss and higher exploration expenses, unit profit came in higher than expected, reflecting a much lower cost base (management estimates operating expenses declined $250 million after-tax sequentially).”

Chevron CEO John Watson cited “strong earnings and healthy cash flows” for the dividend hike, and pointed to future growth highlighted by

Exxon saw production decline 5% in the first quarter, and net income fell 11% year over year. The year-over-year profit drop was Exxon’s first since 2009. The company reported $2 of EPS, 10 cents below expectations. Exxon also raised its dividend on Wednesday, but investors are clearly focused on the earnings report today. Shares fell 1.7% in midday trading.

The company may be hurting because of its increasing reliance on natural gas, which is still trading at extremely low prices. Exxon’s production was 51% oil and 49% natural gas last year, Bloomberg reports, a more gas-heavy split than competitors.

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